Looking back on the housing market in 2015 through a post-Recession lens, it was a decent year, and we expect 2016 to bring just a modest improvement. In 2015, home price appreciation continued, but at a more tempered pace than earlier years. Part of the appreciation was fueled by a relative shortage of housing supply, hovering around roughly 5.0 months of existing home inventory throughout the year. Demand held up in 2015, partially due to the imminent talks of a Fed rate hike that created some urgency. Despite remaining below their pre-bust levels, residential construction and both existing and new sales showed improvements throughout the course of the year.

Our Manager of Housing Economics, Ali Wolf, summarized a number of trends that we will likely experience over the coming year, as outlined below:

The economy and housing market will chug along. When the final numbers are reported, 2015 will likely end on annualized GDP growth rate of 2.5%. Most economists expect the economic growth rate to improve slightly in 2016, allowing the housing market to carry its momentum into 2016 with steady growth. Low inventory is likely to persist through the year, putting upward pressure on home prices. Across the country affordability is already stretched, and we predict housing will become even less affordable in 2016 as prices and rates rise, which could soften conditions in 2017.

Steady domestic housing demand. Growth in the labor market has lasted for over five years, with nonfarm payrolls increasing for 62 consecutive months, the longest stretch on history. In addition, historically low gas prices are putting more money in the pockets of consumers. These factors, plus many homeowners regaining equity, will provide enough demand to keep the housing market going. Everyone is hoping for first-time buyers to flood the market; instead, we expect they will trickle in over the next few years.

Pullback from foreign demand. It’s important to remember that the global market can also influence the US economy and housing market. China’s financial uncertainty, turmoil in the Middle East, and the European migrant and debt crises may slow foreign investments in the US. These influences translate into an adverse effect on the economy, and ultimately housing.

Interest rates will rise at a gradual pace as the Fed aims to raise short-term rates a few more times in 2016. The first increase did not impact mortgage rates significantly since they were already factored in in anticipation of a rise. The Fed has been clear about their trajectory, so we do not anticipate a sudden impact on the housing market. While rising rates do increase the cost of borrowing for homebuyers, we believe the rate moves will create more urgency this year and not slow the market until at least next year.

Coastal markets to remain expensive. We don’t expect affordability relief for any of the high-priced coastal markets, like San Francisco, Los Angeles, or New York. Saddled with long-term structural constraints such as a shortage of land, high costs of construction, and a dearth of inventory, these markets will continue to face fierce competition and bidding wars that will drive price appreciation even higher.

Construction labor shortages. Labor shortages became a big issue for builders in 2015 and we forecast the issue to carry over into 2016 since the shortages are caused by some fundamental shifts. In the depths of the Great Recession, many employees left the homebuilding industry entirely, often for more stability. This left a gap of skilled workers that has yet to be filled. In addition, net immigration is down, even further limiting the labor pool. “Currently, construction employment is generally back to its long-term average in most regions, thus leaving little surplus labor for contractors and developers to draw from as construction activity continues to recover,” explains Kevin Gillen Ph.D., the Meyers Research Chief Economist. This issue will be particularly apparent in the spring selling season, when we expect shortages to cause delays on delivery times and force builders to raise home prices.

Overall, we expect 2016 to bring a modest improvement over the previous year for both housing and economic growth, barring a global recession. The big uncertainty is the current stock market volatility, which if it doesn’t stabilize, could translate into substantially slower growth. Downside risks aside, there are many factors that will work in countervailing directions to each other for 2016, but the final result should be a net positive for the year to come.